Life Cover or Life Insurance is offered by either an insurance company or a financial institution such as a bank. The amount paid out on death, disability or severe illness will depend on the monthly premium amount. This lump sum payment will be paid either to a nominated beneficiary, or to the life assured’s estate.
It is important to be aware that most insurance companies contain exclusions in their terms and conditions such as prohibiting payment of a policy, should the person commit suicide within the first two years of the policy becoming active. Condition-specific exclusions, such as for diabetes or cardiovascular diseases, and occupation-specific exclusions such as for high-risk occupations, could also form part of your life policy – therefore, it is important to know what you are covered for, and what you are not covered for.
Over 70 percent of South Africans do not have life cover in place. This is partly due to a lack of financial education and partly due to the assumption that life cover is too expensive. It is worth your while to discuss all your options with a qualified financial advisor.
What are your options?
Risk Cover includes Life Cover, Disability Cover and Critical Illness Cover, depending on your requirements.
Life Cover – this will be a lump sum payment to your beneficiaries or estate in the event of your death. You can choose whole Life Cover, or a term policy (often used when having to insure an outstanding mortgage which has a set term).
Critical Illness Cover – there are several levels of critical illness cover available, but most would cover you for contracting a severe illness or succumbing to a heart attack. It is vital that you know whether your insurance policy would cover you at 100% of the insured amount if you do contract a severe illness, or whether they would pay out a percentage depending on the severity of your illness.
Often, clients are under the impression that they have a certain amount of cover for a critical illness, and only at claim stage are they informed that they will only receive a percentage of the insured amount, due to the fact that their illness is not deemed severe enough. Again, your financial advisor can ensure that you are covered by a product which will not look at the level of severity when claiming.
Disability Cover – this could be in the form of a lump sum that is paid out in the event of you becoming permanently disabled and unable to perform your current job, or in the form of monthly payments (income protection) which will pay out in the case of temporary or permanent disability, depending on the product selected. Disability Cover is linked to your ability to perform your own job or a similar job or not being able to work at all – again, you need to know upfront which of the above criteria applies to your policy.
Who needs Life Cover?
The notion that Life Cover is only needed later in life is a misconception. “Young people often dismiss protection as something for older people,” says Tom Baigrie, chief executive of an independent financial company.
The rule of thumb when considering life cover should be to find out if there is anyone who would be financially affected if you should die, and 2) do I have any debt? If you are single with no dependants and no debt, you would rather look at taking out Disability or Critical Illness cover, to ensure that you do not become a burden on the state or your parents should you become ill or disabled. But if you have dependants, and your monthly salary supports them, life cover is essential to take care of them in case of your death.
Everybody has different needs in life. It is therefore recommended to speak to a financial advisor regarding the various options available. A qualified financial advisor is trained to give advice on your insurance needs, and will do a financial needs analysis to ensure that you are not over- or under-insured. Beware of over-the-phone insurance sales, where your needs are not taken into account.
Remember: it is never too early to take out Life Cover. You cannot take out a policy after you become ill or disabled, unless you accept a policy which comes along with a (usually) lengthy list of exclusions or where the premium has been loaded to make up for the risk you pose to the insurance company.
Even if you start small, just get started! You have nothing to lose by requesting a quotation from a financial advisor.
